High Net-worth Individuals (HNIs) are widely defined as those having an investible surplus of more than Rs 5 crore. By 2027, there will 9.5 lakh HNIs from close to 3 lakh currently. HNIs form 58 percent of India’s GDP, with close to 30 percent based out of Mumbai and Delhi alone.
Traditionally, HNIs used to rely on a mix of equity and debt investments for growing their wealth. However, over the years, that seem to have changed. Now there is a rising shift towards alternative asset classes.
Changing investment preferences
Commercial real estate is one such asset class that has witnessed a substantial increase in HNIs’ funds allocation. While retail investors prefer diversifying their portfolios to preserve the wealth, HNIs tend to focus on concentrated holdings. Also, there is a notable growing shift towards financial assets over physical assets in the HNI fraternity.
Going by the figures, property is the third-largest investment class for HNIs, after equity and debt. Its share is bound to increase in the future. In 2019, equities remained the most preferred asset class in the portfolio with 29 percent allocation, followed by 21 percent allocation to bonds and 20 percent to property investments.
Also read: 6 trends in HNI investing in the current environment
As a fallout of the pandemic, HNIs/UHNIs are forced to take a closer look at their portfolios and align it as per the perceived risk. Broadly, we have seen large impetus to portfolio re-balancing. Between 20 and 40 percent of wealth has moved from equity to debt – with the safety of capital being the prime factor – followed by 20-30 percent exposure to quality stocks in a phased manner. The fall in the share markets led to the availability of quality stocks at attractive prices.
While it is pertinent to look for the right opportunities, alternatively, investors should hold cash in their portfolio as well. In Warren Buffett’s words, “Cash too has real value, as with many other aspects of investing. Cash is not just an asset class that is returning next to nothing. It is a call option that can be priced.” Hence, when that option is cheap relative to the ability of cash to buy assets, it is prudent to allocate some part of the portfolio to cash or cash equivalents, even if the interest rates are not so lucrative.
To achieve long term wealth creation, here are some factors for HNIs to consider.
Avoid being fussy
It is always better to be hands-on with your finances and wealth. But many rich people tend to place too much emphasis on minor or trivial details, making them lose sight of the “big picture.” Attaching unnecessary importance to either tax efficiency or resisting critical rebalancing of their portfolio for saving exit loads are but a few such examples.
Also read | Investing lessons from crorepatis: Know what to follow and what to avoid
Avoid being an emotional pendulum while making investment decisions
Adopting a balanced and disciplined approach to one’s portfolios may sound easy to follow. However, in practice, it becomes extremely difficult. HNIs are often found oscillating between fence-sitting and being super active when FOMO (fear of missing out) kicks in. To be able to invest successfully, HNIs must calmly focus on asset allocation and avoid this evil habit of being an emotional pendulum.
Avoid drifting towards more complex products
The more money you have, the higher the options you have for its deployment away from plain-vanilla options such as stocks, mutual funds, fixed deposits and bonds, to more complex products such as private equity, art, real estate funds and structures. Heed to your advisor’s guidance and invest only when it merits incorporating the more complex products in your portfolio, not just because they are exotic.
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